NEW DELHI: An audit of Delhi’s Excise Policy 2021-22 has reportedly uncovered significant flaws in its implementation, leading to an estimated loss of Rs 2,026.91 crore in revenue for the city. The policy, introduced by the Aam Aadmi Party government with much fanfare and promises, ultimately turned out to be the proverbial albatross around the neck of its leaders, with allegations of corruption emerging once the policy was implemented.
The audit, experts and those who have accessed it said, was a “leaked” copy of the audit report, which was not tabled in the Delhi Assembly. The said audit, that covers the four-year period from 2017-18 to 2020-21, found a series of systemic failures, design issues, and lapses in governance that severely impacted the functioning of the Excise Department, affecting revenue collection and the regulatory oversight of liquor distribution.
The said report, as per sources, was finalized in the first week of March by then CAG Girish Chandra Murmu.
The Bharatiya Janata Party, which, as per observers, is in a tight fight with the AAP to regain power in the upcoming Delhi Assembly elections, has latched on to the said report.
BJP leader Anurag Thakur, while addressing a press conference on the CAG report on Saturday said that the audit has arrived at 10 major findings about the policy while stating that former Chief Minister and AAP chief Arvind Kejriwal would have to answer the questions it has raised.
“He will have to say who pocketed the money,” Thakur said, alleging that Kejriwal is the kingpin of the scam. Similarly, outgoing BJP president J.P. Nadda claimed the CAG report has exposed intentional lapses, leading to a loss of Rs 2,026 crore to the exchequer.
Nadda wrote on social media platform X, “Intoxicated by power, high on misgovernance. ‘AAP’DA model of loot in full display and that too on something like liquor.” He said it is just a matter of a few weeks before the AAP government is voted out and punished for its misdeeds.
The BJP has accused AAP of putting liquor shops ahead of schools amid the Covid-19 crisis.
The AAP, while introducing the new policy, had stated that it was introducing the now scrapped excise policy with the intent of streamlining the liquor trade, increasing transparency, combating monopolies, and improving the consumer experience. It was projected as a reform in the excise and retail liquor sector that would boost the revenue by Rs 9,500 cr.
However, its implementation, particularly the model introduced in 2021-22, fell short of expectations, resulting in unintended consequences, including financial losses and operational inefficiencies. One major issue, as per the audit, was the shift to a presumptive excise duty system. Instead of charging excise duty per unit of liquor sold, the excise duty was subsumed into the zonal licence fee, based on sales figures of 2019-20, with a 10% growth factor. Retailers, once they paid the zonal licence fee, had an incentive to increase sales without directly generating additional revenue for the government, leading to deep discounting practices that failed to increase excise revenue in proportion to the sales. This model reportedly caused a loss of Rs 2,002.68 crore in revenue due to its flaw.
All the prime accused in the case, including AAP chief Arvind Kejriwal, Manish Sisodia, Sanjay Singh, and BRS leader K. Kavitha, have been granted bail by the court. On 25 October of the previous year, the Supreme Court granted bail to Amandeep Singh Dhall, a businessman and director of Brindco Sales Private Limited, making him the latest accused to receive bail.
Reacting to the CAG finding, AAP’s Rajya Sabha MP Sanjay Singh questioned the veracity of the claims, asking if the report was filed at the “BJP’s office”. Singh also stressed that the report was yet to be tabled in the Delhi Assembly. “Where is this CAG report? Where are these claims coming from? Is it filed at the BJP office? BJP leaders have lost their mental balance. The CAG report has not been tabled, and they are making such claims,” said Singh, seen as number two in the party’s hierarchy. The policy also introduced exclusivity arrangements between manufacturers and wholesalers, encouraging these entities to form exclusive partnerships, which limited competition, the auditors reportedly found.
The creation of retail zones, each with a minimum of 27 wards, further restricted the number of licensees, which increased the risk of monopolization and cartel formation in the liquor trade. This led to a skewed supply chain, with several licensees pushing specific brands, undermining fair competition.
The audit reportedly revealed deficiencies in the process of issuing licenses. The Excise Department failed to rigorously evaluate the financial capacity and management expertise of zonal licensees, granting licenses in several cases without verifying solvency or reviewing audited financial statements. The lack of enforcement allowed related business entities to secure multiple licenses across the liquor supply chain, violating rules designed to prevent cross-ownership and conflicts of interest.
Additionally, the policy was aimed to ensure equitable distribution of retail outlets across the city, but the audit found that vends in non-conforming wards were not opened due to bureaucratic delays and operational shortcomings. This led to the failure of one of the policy’s key goals: ensuring accessibility and convenience for consumers, as well as optimizing revenue generation from a wider base of retail operations.
Several promised regulatory improvements, including the establishment of liquor testing laboratories, batch testing for rigorous quality assurance, and enhanced monitoring, were also not implemented. This left the policy’s regulatory framework incomplete, reducing the ability to enforce standards and quality assurance. The audit also highlighted the absence of proper quality control, as many licensees failed to submit required test reports, and those provided were not compliant with the Bureau of Indian Standards (BIS) requirements. In several cases, test reports were from laboratories that were not accredited by the National Accreditation Board for Testing and Calibration Laboratories (NABL), as required by the Food Safety and Standards Authority of India (FSSAI) Act.
The role of the Excise Intelligence Bureau (EIB), tasked with tackling smuggling, was also ineffective. The audit found that the department’s data collection and analysis were rudimentary, preventing it from identifying trends or gaining actionable insights into revenue leakages. Smuggling of country liquor was widespread, with 65% of all seized liquor being country liquor. The limited range of available bottle sizes and the restricted quota for country liquor further fuelled this illicit trade, compounding revenue losses.
Additionally, significant governance issues emerged. The audit revealed that key decisions, such as granting exemptions for depositing licence fees or deferring actions against defaulters, were made without necessary Cabinet approvals. This raised concerns about the legitimacy of these decisions and the department’s adherence to proper regulatory processes.
There was also a lack of transparency in the pricing of Indian Made Foreign Liquor (IMFL). The policy allowed licensees to set their Ex-Distillery Prices (EDPs), giving them discretion over pricing. The audit found discrepancies in the EDPs across different states, with some licensees manipulating prices to their advantage, leading to revenue losses. The pricing model lacked a mechanism to scrutinize cost sheets or ensure that EDPs were reasonable, which allowed for unfair pricing practices, further diminishing excise revenue generation.
The audit also uncovered violations related to ownership of licences. The Excise Department failed to ensure that entities applying for multiple licences across different categories did not have common ownership, which is a violation of Rule 35 of the Delhi Excise Rules, 2010. This failure led to cross-ownership and proxy ownership, resulting in unfair practices, cartelization, and conflicts of interest. The department’s laxity in preventing these violations further undermined the fairness and competitiveness of the liquor market.